Book - Zero To One - Notes

08 Mar 2017

For the last 2 weeks, I have been reading on and off Peter Theil’s Zero to One book. I kind of liked the book and decide to take some notes on important parts.

Book have a clear writing style and really easy to read. I probably finished it in total 2 days of reading and it has total 14 chapters. The reason I finished it quickly compared to other books is that I like kind of books mashing up past experiences and historical data to give advice about technology/startups/businesses. Peter Theil exactly doing that in the book, taking all his past experiences and mashing it up with data related to startups and making claims on monopolies, culture, hiring, marketing and future technology.

What does zero to one means?

In his view, doing things that nobody has done before means going from zero to one, a technological breakthrough, like creating word processor from a typewriter. This is called vertical progress. While he claims that if you are taking something already working and copying it or changing little means going 1 to N so as horizontal progress. He also relate horizontal progress as globalization like Chinese copying some working products and making new markets for themselves.

What really happened in dotcom crash?

It was an era that people created companies like crazy that provide no value so just to get a little piece of the whole cake. People started and run multiple internet companies from their living room and only become rich on the paper even though they have no actual money for living. Seems like using company share to pay big party bills was a regular move at that time. Of course, it ended not well for that people. Following lessons learned from that era

  • Make incremental advances or It is better to risk boldness than triviality
  • Stay lean and flexible or A bad plan is better than no plan
  • Improve on the competition or Competitive markets destroy profits
  • Focus on the product, not sales or Sales matter just as much as product

Monopoly or a perfect competition?

Your company can be in one of the two different markets either in a monopoly which you surpass all your competitors market share or you are in a perfect competition that getting even small market share is blood battle.

Monopolies generally do not sell themselves as monopolies because doing that put the target behind their back so auditions, lawsuits will be a big problem in the future. Google for example gets %95 percent of their profit from ads while putting themselves as a consumer tech company not advertisement monopoly. Monopoly companies can set their own prices because of their big market share. Author also believe that being monopoly is a good thing. Because your are monopoly and your proiority is not profit anymore you can put much more effort on vertical progress.

On the perfect competition side since no company has any market power no one is capable of changing prices. Contrary to that companies lower their prices in order to gain market share. This will also lower profits which make some of them go out of business in short time. Economy classes advertise perfect competition as preferred state but seems like it not working in real world mechanics.

Characteristics of Monopolies

Proprietary technology look at what Google did to other search engines with their search algorithm. You have to have at least 10x better technology in order to gain advantage in this side.

Network effect so that people have a hard time choosing other product while all your network is here. Facebook is the best example. You do not go to other networks while all your friends are here.

Economics of scale allows you to use fixed costs for a product while growth is not affected by later costs. Twitter is a good example, monopoly gets stronger as it gets bigger. Twitter cost are not skyrocketed when they reach their hyper growth phase and there is nothing stop them to get bigger and bigger.

Branding of course not without mentioning Apple look at Apple brand and others.

  • Start small If you think your market is big than it definitely is. Look for power users with a small market to dominate. It is easy to dominate a small market.
  • Scale up After dominating the small market look for similar user groups and markets. Amazon started with books and move onto other categories as he dominates. Paypal started with Ebay power users and move on from there.
  • Don’t Disrupt Do not start with disrupting, disrupting means trouble.

Be the first mover if you can continue your cash flow in the foreseeable future if not it is better to be the last mover.